Does complexity explain the structure of trade?

Abstract

This paper analyzes whether complexity, measured by the number of skilled tasks that are performed simultaneously in production, explains countries' commodity trade structure. We modify Romalis (2004) model to incorporate differences in complexity across commodities together with differences in average skills across countries and monopolistic competition. Our model predicts that the share of developed countries in world trade increases with products' complexity. The empirical tests confirm this prediction. Moreover, complexity seems to provide a better explanation of countries' commodity trade structure than the one offered only by skill intensity.